Break clauses in a joint tenancy agreement (antenuptual contract between tenants?)

[AndrewDod]

I am writing from the point of view of the tenant in a situation, though am also an interested landlord.

My child (T1) wishes to enter into a joint tenancy agreement with two unrelated tenants (T2,T3). She has an employment contract for 6 months in the area (which might be extended), as do T2 and T3. The agent accepted an "arrangement fee" and tenant checking fees from T1-3 (circa £500), agreed to a tenancy on behalf of L, and only afterwards produced a tenancy agreement which is of 1 year duration with a 6 month break clause (2 months notice either way after 4 months). The tenants had required a 6 month initial tenancy, and were presented with this as "equivalent" - and the L is said to refuse variation to the agreement.

I am reluctant for her to sign.

My understanding (which may not be correct) is that the break clause after the 6 month fixed term would only become actionable if all 3 tenants agreed to serve notice. If all did not, then the tenants wishing to leave at six months would remain liable for rent for the full 1 year term, and subletting could be prevented by either the landlord or the remaining T. This would seem to be extremely dangerous for all tenants.

My inclination is to advise her not to enter into such an agreement unless the agents agree to a 6 month tenancy, or all three Ts agree in advance to serve notice immediately after signing the agreement.
a) Would other members have a view here?

Three subsidiary questions arise:

b) The tenancy agreement has a clause allowing the agent to levy a fee of wholly unspecified magnitude to cover their costs if the agreement is terminated early, and to subtract such costs from the deposit. Would serving notice after the fixed period (but still within the term of the agreement) be regarded as early termination, and how is this appropriate in any case? It would seem to me that serving notice after the fixed period, if allowed by an agreement, does not constitute "early termination".

c) Given that Ts were only shown the agreement after forking out cash, would there be general agreement here that T checking fees and the so called "arrangement fee" should be refunded if Ts refuse to go ahead on the basis of the proposed agreement? Can agents rename what is effectively a holding deposit (an arrangement fee) and thereby get out of the general provisions that would apply to a holding deposit? Given that the only "consideration" here is the production of a mutually acceptable agreement, there is no contract which allows this deposit or checking fees to be to be retained.

There is little alternative accommodation (over a barrel scenario), so I will not be popular if I persuade them to walk away. As someone who is mainly a landlord, I can see why we manage to get such a bad reputation.

Many thanks to all

[Snorkerz]

a) I agree that the break clause would need to be invoked by all 3 tenants.

b) Once the fixed term ends, any terms regarding termination of the contract cease to be relevant (see s5, 1988 Housing Act)

c) I agree that the 'holding fee' should be refundable http://www.landlordzone.co.uk/forums...d-for-security

[AndrewDod]

Many thanks Snorkerz

Just to tease these out a little more:

a) If all three Ts did give notice, would all three Ts also be required to revoke such notice. This comes back to the issue of whether a prior "antenuptual" contract (ANC) between tenants would be of use to protect themselves, and whether such protection could be achieved by them agreeing to give joint notice at the outset. Another form of ANC could be achieved by having a contract between tenants re obligation to cooperate to give notice, but this would be more complicated (the landlord would sue Ts for rent, and Ts would sue each other).

b) I am confused by the definition of "fixed term". If (as here) we have a 1 year "fixed term" contract, but with a break clause at 6 months, is the fixed term 6 months or 1 year? For purposes of issuing S21 it would be 6 months I have always assumed. If the break clause is asymmetrical (Landlord can give 2 month notice after breakpoint, Ts 1 month, what is the fixed term)? If the fixed term is 1 year, then I am completely misled, as I have on two occasions issued S21 notice with given date at the break-date for me as L.

[Snorkerz]

a) notice can not be withdrawn, well at leat a landlord has no obligation to accept a tenants withdrawal, not sure where that would stand between joint tenants.

b) the fixed term is the length of the contract - 12 months in this case. Once the break clause is invoked, then the end of the fixed term changes to whenever the break says.

If a tenancy ran from 1 Jan to 31 Dec the landlord could not issue a s21 to expire on 1st July unless he had already invoked the break (or the s21 was worded to invoke the break).

[AndrewDod]

This is extremely helpful. Some of my S21s would have been invalid: .

On revoking of notice, I guess the issue is that if notice were issued by the joint tenant, and then one component of the joint tenant approached the landlord to withdraw the notice: the landlord might not be obliged to accept such withdrawal (accepted), but could he do so and bind the other tenants?

[Snorkerz]

but could he do so and bind the other tenants?

not sure where that would stand between joint tenants.

I suspect that if the notice must be given by all tenants, it can only be withdrawn by all tenants - but I don't know.

[westminster]

a tenancy agreement which is of 1 year duration with a 6 month break clause (2 months notice either way after 4 months).

a) If all three Ts did give notice, would all three Ts also be required to revoke such notice. This comes back to the issue of whether a prior "antenuptual" contract (ANC) between tenants would be of use to protect themselves, and whether such protection could be achieved by them agreeing to give joint notice at the outset.

They could not give notice at the outset, if the clause does not allow T's notice to be given until after four months.

On revoking of notice, I guess the issue is that if notice were issued by the joint tenant, and then one component of the joint tenant approached the landlord to withdraw the notice: the landlord might not be obliged to accept such withdrawal (accepted), but could he do so and bind the other tenants?

If the T (i.e. all three of them) serves notice under the break clause, it is irrevocable. The T cannot withdraw it and the LL cannot accept a withdrawal. The tenancy will end at T's notice expiry. LL could, if he wished, grant a new tenancy after the tenancy ended. In practice, of course, the two parties might agree to 'ignore' the notice - but in a joint tenancy situation, if there were any dispute as you suggest, with one T trying to pull out etc, that's the legal position.

b) I am confused by the definition of "fixed term". If (as here) we have a 1 year "fixed term" contract, but with a break clause at 6 months, is the fixed term 6 months or 1 year? For purposes of issuing S21 it would be 6 months I have always assumed. If the break clause is asymmetrical (Landlord can give 2 month notice after breakpoint, Ts 1 month, what is the fixed term)?

A notice under a break clause and a notice under s.21 are two completely separate things.

A notice under a break clause is purely contractual, and has the effect of ending the fixed term tenancy at notice expiry. Because it is contractual, the terms of the break clause can be whatever the parties agree (whether that's a month's notice after three months, or two months after six, also expiring at the end of a rental period, etc). When the LL serves notice, then, if the T doesn't vacate, a statutory periodic tenancy will arise, replacing the fixed term tenancy; whereas when the T serves notice, a SPT will not arise after notice expiry (see s.5(2) HA1988).

A notice under s.21 must comply with the statutory requirements. It must give the T at least two months etc. The notice has no effect other than to entitle the LL to apply for a possession order after notice expiry.

Sometimes, the break clause may be worded so as to allow a s.21 notice to simultaneously fulfill the requirements of the break clause.

So, back to your original question. If the fixed term is one year with a break clause, then the fixed term is one year. If the break clause is exercised, then the fixed term is curtailed, and expires upon expiry of the notice.

Finally, you mentioned an assumption relating to the six month point - the term of an AST may be any length, however, the court will not make a possession order under s.21 to take effect earlier than six months after the start of the original tenancy.

[westminster]

My understanding (which may not be correct) is that the break clause after the 6 month fixed term would only become actionable if all 3 tenants agreed to serve notice. If all did not, then the tenants wishing to leave at six months would remain liable for rent for the full 1 year term, and subletting could be prevented by either the landlord or the remaining T. This would seem to be extremely dangerous for all tenants.

Subletting is when a tenant grants exclusive possession over the part or all of the rental property. If a T takes in a lodger, it is neither essential nor advisable to grant the lodger exclusive possession of his bedroom. Whilst many tenancy contracts will also prohibit sharing possession (i.e. taking in a lodger), in practice, there is little that the LL could do about it. He certainly couldn't prevent it. It would be a breach of contract, yes, but the LL would be unlikely to suffer any loss as a result of the breach (so long as the T evicted the lodger before his tenancy ended). The LL would also be unlikely to succeed in obtaining a possession order on the basis of such a breach.

[AndrewDod]

Thank you Westminster.

Also relating to the break clause, the contract (apparently a National Association of Estate Agents template) has a term:

"Any Administration Costs not paid by the tenant incurred by the Landlord’s Agent following early ending of the tenancy by the Tenant will be deducted from the Deposit".

Could this be taken to imply that if L had paid A an unknown fee presuming a 1 year tenancy, then if T invokes a perfectly legitimate right to reduce the fixed term via a break clause T could incur a legitimate deduction from the deposit for a portion of that fee. If the clause is meaningless/unfair, what is it doing in the template agreement produced by this esteemed body? What other cost could possibly be incurred by the agent as as result of a break clause.

[mariner]

Wot westminster said re fixed term + break clause.
However since LL could serve a s21 at anytime during fixed term after deposit protection and prescribed info provided to Ts, if served at month 2, with correct phrasing, it would activate the break clause at end of month 6, creating SPT, then LL can proceed with repo action, without further 2 month s21 expiry delay.
Thus I can see no reason why all 3 Ts cannot provide Notice to activate break clause & NTQ, to expire 'at specified time' ie end of month 6. which would end the T. The terms are then equitable to both Parties. The advantage to Ts is they know they will have to vacate T at end of month 6, allowing those who wish to remain requiring new ASTs, at LL discretion

Such gamesmanship may not be acceptable if an Olympic far Eastern badminton player!

An informal 'pre-nup' between Ts is likely to sour with time.
Even with current 1 yr AST provisions, it would be possible for LL to agree to re-assignment of any ind T liability, subject to that T agreeing to pay costs to find acceptable new T.

[AndrewDod]

This really is an incredible forum.

Without wishing to extend the thread further, I think the point raised about Olympic Gamesmanship is pertinent. The problem with the Olympics is that the rules are such that they confuse the game - and it is the rulemakers not the players who are at fault. Much of Tenancy law, it seems to me, unnecessarily complicates and confuses what would and should be straightforward consensual and mutually agreeable contractual relationships between intelligent and consenting adults. Whilst the intentions and some of the rules may be appropriate, the net effect is to benefit neither party, to increase prices, and to impact badly on the inexperienced vulnerable folk it is supposedly designed to protect.

[westminster]

Thank you Westminster.

Also relating to the break clause, the contract (apparently a National Association of Estate Agents template) has a term:

"Any Administration Costs not paid by the tenant incurred by the Landlord’s Agent following early ending of the tenancy by the Tenant will be deducted from the Deposit".

Could this be taken to imply that if L had paid A an unknown fee presuming a 1 year tenancy, then if T invokes a perfectly legitimate right to reduce the fixed term via a break clause T could incur a legitimate deduction from the deposit for a portion of that fee.

It might be taken to imply it, but the tenancy would not end 'early' if the T exercised the break clause - arguably, it would simply end - so I think it is referring to a surrender during the fixed term (which, in any case, requires actions on the part of both parties in order to effect a surrender)* but I'm just reading the clause in isolation.

It is (I think) trying to cover the scenario where, say, the T vacates without notice (i.e. an implied offer to surrender). But this would not, in itself, end the tenancy. It would only be an offer, which the LL would be free to accept or reject. If he rejected it, he could treat the tenancy as continuing and pursue the T for rent for the remainder of the fixed term (as it fell due). If he accepted it, LL could make his acceptance conditional on payment of £X (T wouldn't be liable for LL's or LA's costs, as such, but if T refused to pay £X, and LL refused to accept the offer to surrender, then T would remain liable for rent). So the clause is fairly pointless, particularly if there's a break clause.

If the clause means what you think it means, then IMO it would be unfair/unenforceable, because it would mean that T could not exercise the break clause without incurring punitive costs, so it would place T at a significant disadvantage compared to LL.

Finally, the LL cannot make unilateral deductions from the deposit. He can only do so if the T agrees, or if a court or deposit scheme adjudicator decides that LL may make the deduction.

If the clause is meaningless/unfair, what is it doing in the template agreement produced by this esteemed body? What other cost could possibly be incurred by the agent as as result of a break clause.

Estate agents are not the same as letting agents. There is another body for letting agents, ARLA. It seems unlikely that NAEA produce short term tenancy contracts for its members.

===
* Surrender of a tenancy may occur in one of two ways. Either formally, by LL and T signing a Deed, or by operation of law. The latter is where both parties actions are inconsistent with the tenancy continuing; for example, T vacates, removes all his belongings, tells the neighbour he won't be coming back, and posts the keys to the agent (this could be interpreted as an implied offer to surrender) - if the LL then retakes possession and relets the property, his actions would show that he'd accepted the implied offer. In reality, the T's/LL's actions may not be wholly unequivocal, so in the event of dispute, a court would have to decide whether there had been a surrender by operation of law.

[westminster]

However since LL could serve a s21 at anytime during fixed term after deposit protection and prescribed info provided to Ts, if served at month 2, with correct phrasing, it would activate the break clause at end of month 6, creating SPT, then LL can proceed with repo action, without further 2 month s21 expiry delay.

A s.21 notice served in the second month would not fulfill the requirements of the break clause, which only allows notice to be served after the fourth month. Of course, LL may serve both notices after the fourth month (or one fulfilling both functions), expiring after the sixth month, but this is beside the point; OP's question does not relate to LL serving notice.

Thus I can see no reason why all 3 Ts cannot provide Notice to activate break clause & NTQ, to expire 'at specified time' ie end of month 6. which would end the T.

There is no reason why all three joint tenants cannot exercise the break clause after the fourth month. That is not the point. The difficulty is in the event that one or more of the tenants refuse to cooperate in serving notice under the break clause.